Spring Budget Predictions

The Chancellor, Jeremy Hunt, has announced that the Spring Budget will take place on Wednesday 6 March 2024. This will be the Chancellor’s second budget and will include the government’s tax and spending plans as well as new growth and borrowing forecasts.

The Spring Budget could be followed by a general election in as early as May 2024. However, it remains possible that an election will be much later in the year, possibly to coincide with the Autumn Statement. The Budget could also be the last chance for the government to announce significant changes to tax policy before a general election, which must be held by 28 January 2025.

The Chancellor is expected to announce any pre-election tax cuts at the budget in the hope of raising the governments popularity ahead of the election. He will be resistant to significantly altering tax rates and thresholds previously announced. However, a number of backbench MPs are calling for tax cuts as UK taxpayers face the highest tax burden in decades due to the fact that thresholds have been frozen for five years until 2028. In the Autumn Statement, the Chancellor extended tax breaks for business and cut National Insurance contributions (NICs).

The Office for Budget Responsibility (OBR) has been commissioned to prepare an economic and fiscal forecast to be presented to Parliament alongside the Spring Budget.

Of course, trying to predict what will be in the 2024 budget remains tricky but we do have some strong indications. Recent topical tax areas that may be targeted include the following:

Inheritance Tax may be abolished or overhauled

Abolishing IHT was expected in the Autumn Statement. However, some said that the government focused on tax changes that more directly focused on boosting economic growth. IHT is currently charged on the estates of deceased persons as well as on certain lifetime gifts. IHT applies to the value of an estate that exceeds a specified nil-rate band and the IHT tax rates range from 0% to 40%. Although abolishing IHT may be seen as a popular move, it is reported that it only affects about 4% of estates. Any changes will therefore affect relatively few families. However, there has been some speculation that for transfers on death the IHT rate of 40% will reduce to 20% to be in line with the rate for lifetime transfers.

Income Tax thresholds may be increased

While raising the higher rate threshold for Income Tax would help many people and would be a welcome pre-election measure, the government has currently frozen personal tax thresholds until April 2028. High inflation and related wage increases have pushed many more people into the higher rate tax band. If the tax-free threshold in particular remains frozen, fiscal drag will mean people pay more tax.

Income Tax rates

 It is feasible that the government could consider building on the reductions in NIC’s announced in the Autumn Statement and reduce the Income Tax rates in the Spring Budget. However, if they do choose this route, it is most likely to be a 1-2% reduction in the basic rate of Income Tax. This would appeal to the masses whose annual taxable income falls within the basic rate threshold.

VAT threshold may be raised

There is a strong belief that raising the VAT threshold would positively impact economic growth. The VAT threshold is currently £85,000 and this was set in April 2017. Some businesses take measures to keep their business turnover below the threshold to avoid registering for VAT. Not only would an increase seem likely but by raising the threshold that businesses would need to register for VAT could be seen as a way of aiding growth in UK business.

Simplification of Capital Allowances

 The introduction of permanent full expensing in the Autumn Statement was a welcome simplification of the business tax system. However, it only applies to expenditure on plant and machinery and to companies. We may therefore see further measures to simplify the capital allowances legislation, although this is unlikely to grab the desired headlines.

Research and Development (R&D) regime

R&D relief is a long-standing tax relief for companies that aims to boost innovation in the UK and the UK economy. There are currently two schemes in place, the small and medium sized companies (‘SME tax relief’) and the R&D Expenditure Credit (‘RDEC’), which is mainly claimed by larger companies. It was announced in the Autumn Statement that it is planned to simplify the R&D regime by replacing these existing schemes with a new merged scheme from April 2024. However, rushing the new merged scheme in may potentially bring problems for taxpayers and for HMRC. It risks undermining the policy aims of encouraging innovation and growth through R&D investment.

As the next general election must happen by January 2025 at the latest, 2024 is likely to be a campaigning year for all UK political parties. This can mean uncertainty over policies moving forward while businesses face anxiety about rising costs and energy bills.

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Don’t forget that we are here to help you, no matter what changes arise in the 2024 Spring Budget, so please do get in touch if you need advice.

Disclaimer - All information in this post was correct at time of writing.